Quick Answer: Israel's 2026 income tax brackets run from 10% on the first NIS 84,120 of annual income up to 50% on income above NIS 721,560, across seven bands under the Income Tax Ordinance (New Version) 1961. A credit point system (nekudot zikui) then reduces final tax payable by a fixed NIS amount per point held. Non-residents pay the same bracket rates on Israeli-source income only, but typically receive fewer credit points than residents. New immigrants who arrived in Israel during 2026 qualify for a temporary 0% rate on foreign-source income for the first two years under a special Knesset incentive enacted in 2024.

Tax in Israel is calculated in two stages. First, you apply the graduated brackets to your taxable income to get a gross tax figure. Then you subtract the credit point allowance to arrive at the actual amount owed. The result is a system where someone on a modest income may pay very little once credits are applied, while higher earners face steeply rising rates.

For foreign nationals the picture splits into two distinct situations. If you have become an Israeli tax resident, you pay tax on your worldwide income at the same brackets as any Israeli citizen. If you have not, and are merely earning income from Israeli sources while living abroad, you pay only on what comes from Israel. The difference in scope is substantial, and so is the compliance burden that goes with each status. This guide covers both.

1. How Israel's Income Tax System Works

Israel taxes individuals under the Income Tax Ordinance (New Version) 1961 (Pekudat Mas Hachnasa). The Israel Tax Authority (Rashut HaMisim, ITA) administers collection, audits, and enforcement from its district offices and through the online Shaam portal.

The foundational rule is that Israeli tax residents pay tax on their worldwide income, while non-residents pay only on income sourced in Israel. Residency is defined in Section 1 of the Ordinance and turns on two tests:

  • The 183-day rule: spending 183 or more days in Israel during a calendar year creates a rebuttable presumption of tax residency.
  • The center-of-life test: even below 183 days, a person whose family, home, work, and economic interests are primarily in Israel can be deemed a resident. The ITA weighs where your spouse and children live, where your primary dwelling is located, where your bank accounts are held, and where you spend most of your working time.

Both tests operate on a calendar-year basis (January 1 to December 31). Residency is not determined by visa status or passport. Foreign nationals on long-term work visas have been assessed as Israeli tax residents by the ITA. Conversely, Israeli citizens who moved abroad years ago have in some cases remained tax residents because their family and financial ties stayed in Israel.

For non-residents, "Israeli-source income" covers salary earned while physically working in Israel, rental income from Israeli property, dividends and interest from Israeli companies, royalties for use of intellectual property in Israel, and capital gains from Israeli assets. A foreign executive who spends 40 days in Israel on a project has earned taxable Israeli-source income for those days. Working remotely for a foreign employer while temporarily in Israel may also generate taxable income if the residency threshold is crossed during the year.

2. Israel's 2026 Income Tax Brackets

Israel adjusts its tax brackets each January based on the Consumer Price Index. The 2026 bands are:

Annual taxable income (NIS) Rate Monthly equivalent (NIS)
0 – 84,120 10% 0 – 7,010
84,121 – 120,720 14% 7,011 – 10,060
120,721 – 193,800 20% 10,061 – 16,150
193,801 – 269,280 31% 16,151 – 22,440
269,281 – 560,280 35% 22,441 – 46,690
560,281 – 721,560 47% 46,691 – 60,130
721,561 and above 50% Above 60,130

Section 121B of the Income Tax Ordinance imposes an additional 3% surtax on annual taxable income above NIS 721,560. This surtax sits on top of the 50% bracket rate, effectively pushing the combined marginal rate to 50% on income in the top band after applying the surtax separately. The ITA recalculates and publishes confirmed thresholds each January in a notice (hoda'at arichat misvach); the figures above reflect the inflation-adjusted 2026 amounts.

These rates apply to "real" income after allowable deductions. Relevant deductions for individuals include contributions to recognized pension funds (up to specified ceilings), charitable donations to approved institutions under Section 46 of the Ordinance, and certain disability-related expenses.

In Practice: A foreign national earning NIS 250,000 per year as a salaried employee in Israel has a gross tax liability of approximately NIS 51,300 before credit points are applied. After subtracting the standard resident credit allowance of 2.25 points (approximately NIS 6,534 annually), net tax falls to around NIS 44,766, or roughly NIS 3,730 per month withheld by the employer. These figures are calculated by the payroll system once the employee submits a completed Tofes 101. The ITA's tax calculator on the Shaam portal allows verification once the current year's confirmed bracket thresholds and credit point values are published.

3. Credit Points (Nekudot Zikui): How Israel Reduces Your Tax Payable

Israel's credit point system is one of the more distinctive features of its income tax structure. A credit point does not reduce your taxable income; it directly reduces the tax you owe. Each point is worth a fixed NIS amount, updated annually. For 2026, one credit point is worth approximately NIS 2,904 per year (NIS 242 per month).

Different categories of taxpayers receive different credit point allocations:

  • Israeli residents (general): 2.25 basic credit points per year, giving an annual tax reduction of approximately NIS 6,534.
  • New immigrants (Olim) — first 18 months: an additional 3 credit points on top of the standard allocation. A new immigrant in their first 18 months receives 5.25 points in total, worth approximately NIS 15,246 per year in tax reductions.
  • Women: an additional 0.5 credit points per year under the Income Tax Ordinance.
  • Parents of children under 18: up to 2.5 credit points per child depending on age bracket and custody arrangements, under Sections 40 and 40A of the Ordinance.
  • Non-residents earning Israeli-source income: generally entitled to 0.5 credit points per month of physical work in Israel, subject to eligibility conditions and applicable double taxation treaty provisions. They do not receive the full resident allocation.

Credit points are claimed through Tofes 101 (see Section 4 below). If you do not submit the form, your employer defaults to a minimal credit point allocation and withholds more tax than you actually owe. The excess can only be recovered through the annual return process, meaning you wait until the following year for a refund. Filing Tofes 101 promptly avoids this outcome entirely.

In Practice: New immigrants who delay submitting Tofes 101 sometimes find their employer has been withholding at the full rate for several months, without the immigrant credit points. When this happens, the overpaid tax shows as a credit on the annual return (Tofes 1301) and is refunded by the ITA, usually within 60 to 90 days of filing. You cannot claim these points retroactively through the payroll system once the tax year closes. Submit Tofes 101 to your employer within 30 days of starting work or of making aliyah, whichever comes first.

4. Employer Withholding and the Tofes 101 Declaration

Israeli income tax is collected primarily through employer withholding (nikui bamkor). The employer calculates monthly gross tax based on the employee's bracket, deducts the credit points declared on Tofes 101, and remits the balance to the ITA by the 15th of the following month under Section 164 of the Ordinance.

Tofes 101 (the Employee's Declaration) is the form employees use to inform their employer of their tax situation. It captures:

  • Full name, Israeli ID or passport number, and address
  • Immigration status and date of aliyah (for new immigrants)
  • Whether you have income from additional employers or other sources
  • Spouse's employment status and credit point splitting between spouses
  • Number of dependent children and their ages
  • Any additional credit points you are entitled to (disability, lone parent, etc.)

Employees must submit Tofes 101 within 30 days of starting any new job and must update it whenever circumstances change. An employer who collects no Tofes 101 is required by law to withhold at the highest applicable rate. Employers who fail to collect the form face ITA administrative penalties. Once the correct form is on file, the employer adjusts withholding from the following payroll run.

Each January, the employer issues an annual withholding summary (Tofes 856, Employer's Annual Reconciliation) covering income earned and tax withheld during the prior year. Employees receive their copy by January 31. This document is the primary input for any annual return filing and for verifying that the employer remitted the correct amount to the ITA.

In Practice: Foreign workers joining an Israeli company under a B/1 work visa should submit Tofes 101 on their first working day, not after their first payslip arrives. The employer cannot retroactively correct the withholding for a month that has already closed and been remitted to the ITA. For months where no Tofes 101 was on file and excess withholding occurred, the only route to recovery is the annual return. The ITA's Shaam portal at taxes.gov.il allows employees to verify their withheld amounts against what their employer reported, and to file a refund claim if a return is not otherwise required.

5. Non-Residents: How Israeli Income Tax Applies to Your Israeli-Source Income

If you are not an Israeli tax resident, Israel taxes only the income sourced within Israel. The bracket rates are identical to those applied to residents, but the practical outcome differs in two ways: non-residents typically receive fewer credit points, and they face withholding at source because there is usually no registered Israeli payroll relationship managing the tax.

Common categories of Israeli-source income for non-residents include:

  • Salary and wages: income earned while physically working in Israel is Israeli-source income, regardless of where the employer is registered. Short-term business visitors should track their days carefully — the 183-day residency threshold can be reached faster than expected when travel is spread across two calendar years.
  • Rental income: rent from an Israeli property is always Israeli-source income. Non-residents have a specific election under Section 122 of the Ordinance: pay 10% on gross rental income with no deductions and no annual filing requirement, or file a full annual return and pay marginal rates on net income after expenses. The right choice depends on the property's expense ratio.
  • Dividends and interest: payments from Israeli companies are subject to withholding at source. Standard domestic rates are 25% for dividends to non-substantial shareholders and 15–25% for interest, depending on instrument type. Double taxation treaties between Israel and your country of residence frequently reduce these rates.
  • Royalties: licensing fees for intellectual property used in Israel are withheld at 25–30% at source under Sections 170 and 170A of the Ordinance.

Non-residents who have a double taxation treaty with Israel should check whether their country's treaty article on the relevant income type reduces the Israeli withholding rate. To claim a reduced treaty rate, you need a current tax residency certificate (teudat toshavut mas) issued by your home country's tax authority. Some treaties additionally require a beneficial ownership declaration. Apply for these documents before the income payment is due — obtaining them retroactively is significantly harder and sometimes impossible.

In Practice: A US resident who receives NIS 120,000 in annual rental income from a Tel Aviv apartment must choose between the two available tax tracks. Under Section 122, they pay a flat 10% on gross income (NIS 12,000), with no deductions and no annual return required. Under the marginal rate track, they can deduct depreciation under the ITA's published depreciation table, property management fees, maintenance costs, and the applicable portion of purchase tax paid — potentially reducing the taxable profit to NIS 55,000 or less, on which the brackets yield roughly NIS 8,500 in tax. The marginal rate track requires filing an annual Tofes 1301 with the ITA by April 30. For most non-resident landlords with significant property costs, the marginal track is cheaper. Switching from one track to the other requires ITA notification and cannot be done year by year at will.

6. Special Income Tax Benefits for 2026 New Immigrants and Returning Residents

Israel has long offered new immigrants and long-returning residents a 10-year exemption from Israeli income tax on foreign-source income under Section 14(a) of the Income Tax Ordinance. During that decade, foreign dividends, foreign rental income, foreign pensions, and most other income earned abroad are not taxed in Israel at all.

In 2024, the Knesset added a further incentive specifically for people who made aliyah or returned to Israel as a toshav chozer vatik (veteran returning resident, meaning 10-plus years abroad) during the 2026 calendar year. Those qualifying individuals face the following rates on foreign-source income up to NIS 1 million per year:

  • 2026 and 2027: 0% income tax on qualifying foreign-source income
  • 2028: 10%
  • 2029: 20%
  • 2030: 30%

After 2030, the Section 14(a) standard framework governs the remainder of the 10-year exemption period. Foreign-source income above NIS 1 million per year falls under the standard Section 14(a) terms from day one.

One critical distinction: the 0% rate and the underlying Section 14(a) exemption apply only to foreign-source income. Israeli-source income — salary from an Israeli employer, rental income from Israeli property, freelance work performed in Israel — is subject to the full standard brackets from the first day of Israeli tax residency. A software engineer who makes aliyah in 2026 and works for an Israeli tech company starts paying Israeli income tax on their salary under the standard brackets immediately. The 2026 incentive does nothing to reduce that obligation.

The 2026 cohort also operates under new mandatory reporting rules introduced by Amendment 268 to the Income Tax Ordinance. Unlike earlier immigrant cohorts who had no reporting obligation on exempt foreign income, all individuals who became Israeli tax residents on or after January 1, 2026 must file an annual worldwide asset and income declaration with the ITA even in years when no Israeli tax is owed. The declaration covers foreign bank accounts, investment portfolios, real estate holdings outside Israel, pension accounts, trusts, and business interests abroad.

In Practice: The 2026 immigrant incentive is activated automatically by the qualifying aliyah date — there is no separate ITA application. However, you must notify the ITA of your residency status correctly. Submit Tofes 101 to your Israeli employer with your date of immigration entered, register as an Israeli taxpayer at the local ITA district office within 90 days of arrival, and file the mandatory worldwide asset declaration (currently using the supplemental schedule to Tofes 1301 under Amendment 268) by April 30 of the year following your arrival. Failing to file the declaration triggers penalties under Section 216 of the Ordinance starting at NIS 500 per month, rising to NIS 1,000 per month after 14 months of non-compliance. The declaration cannot be waived even when 0% tax is owed on the declared income.

7. Who Must File an Annual Income Tax Return in Israel

Not every person with Israeli income must file an annual return. Most salaried employees whose only income comes from an Israeli payroll — with correct withholding processed through the Tofes 101 system — are exempt from filing an annual return (ptor mihadasha) if their total income falls within the relevant threshold. The ITA publishes the specific threshold criteria each year in a public notice.

You are generally required to file an annual Tofes 1301 with the ITA if you:

  • Are an Israeli tax resident with income from more than one employer, or with significant non-salary income such as rental income, business income, capital gains, or foreign income
  • Are self-employed or operate a business in Israel in any form
  • Are a non-resident with Israeli-source income that was not fully covered by withholding at source
  • Became an Israeli tax resident on or after January 1, 2026 — the mandatory worldwide asset declaration under Amendment 268 applies regardless of other filing obligations
  • Realized capital gains from selling Israeli assets, shares in Israeli companies, or Israeli real estate during the year
  • Received Israeli-source income from which the correct withholding was not deducted

The annual return deadline is April 30 of the year following the tax year. The ITA routinely grants extensions to July 31 for individuals represented by a licensed Israeli accountant or attorney (roa' cheshbon or oreikh din); extensions are applied for through the representative's professional office. Missing the deadline without an approved extension triggers automatic penalty surcharges of 0.5% of the tax owed per month under Section 191B of the Ordinance.

Returns are filed electronically through the ITA's Shaam portal at taxes.gov.il, using the personal access code assigned when you register as a taxpayer. Foreign nationals who have not previously registered with the ITA should do so at the local district office in the district where their Israeli income arises — for rental property, that is the district where the property is located.

Common Mistake: Foreign nationals who own Israeli rental property and elected the flat 10% tax under Section 122 sometimes assume they have no further filing obligation with the ITA and never register as taxpayers. This works while rent is the only Israeli income. The problem arises when they later sell the property: the betterment tax declaration under the Land Taxation Law 5723-1963 must be filed within 30 days of the sale, with the tax paid within 60 days, and the ITA requires an existing taxpayer file number to process it. Without prior registration, there is no way to file within the 30-day window. Late or missing betterment tax declarations attract interest and penalty surcharges that can add significantly to the final tax bill. Any foreign national with Israeli real estate should register as a taxpayer at the ITA regardless of whether their current rental income tax is settled at source through the Section 122 election.